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Rural and Urban...Together

We got tired of hearing people in the Twin Cities say that they were the only engine that drove the state. We felt that wasn't true — and after we studied the economy of Minnesota, we knew for certain that they were wrong.

jpellgenRural residents in Minnesota don't just benefit the Twin Cities when they come to shop at the massive Mall of America (above). A new study of the state's economy finds that growth in rural Minnesota creates jobs in the cities.

We (here at Minnesota Rural Partners) are no longer surprised when we hear city people voicing some pretty unbalanced views on their relationships with the rural parts of our state.

Folks from the Twin Cities (the nickname for the neighboring cities of Minneapolis and St. Paul) say things like, “We are the engine that makes this state possible.”

Or, “We drive the state’s employment and tax revenues.”

And, of course, the perennial favorite: “We do all the heavy lifting and yet, Minnesota legislators still make such big whine about emphasizing rural Minnesota in the allocation discussion! It’s not right!”

While we have gotten used to hearing it, we never bought into this line of argument — mostly because we didn’t think it is true. In fact, our intuition has long been that this urban-centric view was missing the mark by a long shot.

Recently, MRP and the U.S. Department of Agriculture tested our thinking with a study. We wanted to find out where Minnesota’s jobs are located and what is the relationship between rural and urban communities in our state.

This was a pilot study, so our focus was both narrow and simple. We worked with experts at the University of Minnesota and at Purdue University. Together, we studied the state’s industrial clusters, the groups of inter-related businesses that have grown up close to one another.

Some clusters are more desirable than others. “Traded” clusters do the most for a local economy because they have products or specialized services that are sold to those outside the community. These businesses bring wealth into a region and drive innovation and competitiveness. Examples of “traded” clusters would be chemicals, energy, and biomedical.

Restaurants and retail outlets, which are not traded industry clusters, tend to derive their revenue from consumers located within the region.

Vibrant economies are built upon these traded clusters of related businesses, such as the financial district in New York, Silicon Valley in California and the group of carpet manufacturers around Dalton, Georgia.

In this study, we measured how changes in one area of the state’s economy affected others. (See the full report to see a full explanation of our methods.)

The results of our simple study provide clear and measurable evidence of the degree to which urban businesses and people are dependent on their rural neighbors. The full report can be found here.

But, in brief, here is what we found:

• Rural Minnesota provides critical employment in a number of the most sought-after industry clusters.

Forty percent of Minnesota’s total employment in 17 traded industry clusters take place in rural Minnesota. In half of the clusters we studied, the majority of the jobs were found in rural Minnesota. These clusters include: education, energy production, mining and arts, entertainment and tourism.

We saw improvements in rural manufacturing performance sending economic ripples into the Twin Cities — and it wasn’t just rural people going to the Mall of America to buy clothes! Economic activity in rural Minnesota resulted in new white-collar urban jobs and lots of new sales for city-based suppliers.

Again, the economic benefit wasn’t the result of rural people “come to town” to shop. In fact, 70% of the additional consumer spending due to rural economic growth took place in rural Minnesota for both of the industry clusters we studied (manufacturing and agribusiness). Rural consumer spending isn’t the most compelling reason for urbanites to invest in rural economic growth.

• Urban markets benefit from rural prosperity in a number of interesting ways. For instance, if rural Minnesota’s manufacturing cluster has a 6 percent growth in output, the urban area picks up 16 percent of the almost 6,500 new jobs gained.

The urban area also receives 38 percent of Minnesota’s additional business sales stimulated by rural manufacturing’s growth.

• The reverse is also true! A $1 billion decrease in manufacturing output in rural Minnesota results in 1,043 jobs lost and a loss of $207,822,848 in revenue among Twin Cities area businesses.

• Certain industry clusters are distributed more evenly between rural and urban regions. For instance, agribusiness has very little output originating in the urban region (only 15 percent of the total statewide output), while manufacturing is almost evenly split (53 percent of the total statewide output originates in the urban region). See the chart below for an illustration of the differences in both the size of the industry clusters and the relative output distribution between rural and urban businesses.. The chart shows the distribution of jobs between rural and urban in each cluster. (Rural jobs are the inside of the slice.) The bigger the sector, the bigger the slice.

• Agriculture is a powerful job creator. Even though $1 billion of additional output is only a 3% change for the agribusiness cluster (or half as large a change in output as a similar dollar size growth in manufacturing), those billion dollars of additional agribusiness output generate 12 percent more subsequent dollars of spending captured in Minnesota and 13 percent more new jobs throughout the state, than would the same dollar value increase in manufacturing output.

• The rural-urban distribution of a traded cluster’s suppliers varies. Over three-quarters of agribusiness’s subsequent increase in output (the statewide “ripple effect”) comes in the form of increased business-to-business sales. More than three-quarters of that stays in rural Minnesota. Almost two-thirds of manufacturing’s “ripple effect” comes in the form of increased business-to-business sales. Nearly half of those business-to-business sales occur in the urban region.

• Interestingly, the urban jobs gained due to growth in rural agriculture and rural manufacturing were very similar. When we looked at the ten occupations that gained the most jobs in the city, rural manufacturing and rural agribusiness shared seven of the same (mostly white collar) occupational groups.

These seven occupations account for about 40 percent of the urban job growth for both manufacturing and agribusiness.

This is what we’ve learned. Now, what does it mean for rural development policy?

At minimum, our research underscores the need to get away from the kind of urban vs. rural conflict we see too often here in Minnesota (and in Washington, D.C.). We can see that urban and rural don’t compete. They don’t have distinct needs. Urban and rural America are, in fact, interdependent.

This is a tough lesson for us to learn. But the United Nations has already gotten there. So has the European Union. Why are we here in the U.S. so slow to understand?

The evidence we uncovered finds that there are few, if any, solely urban or rural economic outcomes. Damage to the city causes damage to the countryside. And vice versa.

Likewise, prosperity in rural areas drives prosperity in the city. So we must dissolve those silos of decision-making and funding, one marked urban and the other rural. And we need to coordinate policy and investments in an approach that fully values the ways in which a healthy city depends on robust suburbs, exurbs and rural areas.

Furthermore, we need to keep in mind that all development investments will not have identical impacts on rural urban trade flows and job creation. While two stones of the same size dropped into the same pond might create identical ripples, economic development investments made in rural Minnesota have very different impacts both within the rural region and on urban centers. And those impacts vary depending on the industrial sector — tourism, manufacturing, agribusiness. Different business clusters have different geographic footprints.

Our hope here is to trade heat for light — to substitute a fact-based understanding of how rural and urban economies work for the arguments we hear too often.

What we’ve learned is that rural and urban people, businesses and institutions depend on each other’s well being in order to achieve their own success. We all need to proceed based on that fact.

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Just wanted to let everyone reading this know that you can participate online in Kate's presentation on the study, and see other presentations on the subject via the online connection to the Rural Urban Interdependencies Forum, April 5: ONLINE ACCESS to the 1 to 4:30 p.m. sessions will be available live and free of charge on April 5th at https://umconnect.umn.edu/mnruralpartners Please sign in as a guest.